Investors rebalance portfolios ahead of earnings season

Six days to the end of the year, investors appeared to be rebalancing their portfolios in favour of year-end earnings and returns.

The stock market has sustained a largely bullish outlook in spite of the Yuletide season and year-end demand for cash. Average market gain was 1.88 per cent last week while it rose further by 0.87 per cent on Monday.

Market assessments by analysts and investment advisors several securities and investment firms including FSDH Merchant Bank, GTI Securities, Capital Assets and Morgan Capital Group, among others, indicated possible increase in momentum of portfolio rebalancing as pundits advised investors to lock in into equities with strong fundamentals and better prospects for good returns.

Most quoted companies, including all banks, major manufacturers, oil and gas companies, breweries and cement companies use the 12-month Gregorian calendar year as their business year. The business year thus terminates on December 31.

Post-listing rules at the Nigerian Stock Exchange (NSE) require that quoted companies should submit their reports, not later than three months after the expiration of the period.

“Wise investors are positioning for the first quarter market boom, which is expected to be driven by good audited results and dividend,” Oyekunle said in a note to The Nation.

He noted that investors were optimistic that the positive impact of the power sector reforms and other economic policies will provide impetus for further market performance in 2014.

Market reports have shown marked improvement in the momentum of activities on stocks perceived to have potential for relatively high dividend yields and headroom for capital appreciation. Investors have particularly shown keen interests in low-priced stocks which modest dividend could translate into high yield given the low share price.

Already, Transnational Corporation of Nigeria (Transcorp) and FBN Holdings have given prior notices that they would be paying dividends for the 2013 business year.

FBN Holdings Plc, the holding company for First Bank of Nigeria (FBN) Limited and other financial services companies, has indicated that it has started definitive moves to ensure payment of dividends for the year.

The confirmations of the dividend payment indicated the confidence of the boards of directors on the third quarter earnings and the last quarter of the year.

The board of FBN Holdings stated that it had undertaken the group-wide audit of the third-quarter earnings of its subsidiaries to ensure that it receives dividends from its subsidiaries for onward distribution to shareholders.

According to the board, FBN Holdings has chosen to audit the financial statements to ensure that the holding company, a non-operating entity sharing the same December year-end with its subsidiaries, receives dividend income from its subsidiaries within the year 2013 and as such enable FBN Holdings to pay dividend to shareholders for the year ended December 31, 2013.

FBN Holdings indicated that it has concluded the audit process and submitted its audited financial statements to the Central Bank of Nigeria (CBN) for approval noting that once it receives the CBN’s approval for the audited financial statements, it will submit the third quarter accounts to the NSE.

Also, the board of Transcorp has resolved that the conglomerate would pay dividends for this business year.

At their board meeting, directors of the conglomerate unanimously resolved that they will recommend to the shareholders of the company the payment of dividends at the end of the financial year ending December 31, 2013.

The dividend consideration, according to the board, was based on the impressive third quarter report for the nine-month period ended September 30, 2013 and in further consideration of the fact that since the listing of the company’s shares on the NSE in December 2006, the Nigerian public who bought into the conglomerate has not earned any dividends.

The board however stated that the quantum of the dividend recommended herein shall be determined at the end of the year, subject to the final audited accounts and required regulatory approvals or consent.

Market analysts said dividend consideration was part of the dynamics currently shaping share pricing trend.

Most interim earnings reports had shown significant improvements in distributable earnings of quoted companies, which will expectedly determine the quantum of dividend payout.

Nine-month report of Conoil for the period ended September 30, 2013 showed that pre and post tax profits rose by 341 per cent and 329 per cent. While sales growth was modest at 6.0 per cent, the company had leveraged on increasingly efficient cost management and financing structure. Turnover rose to N121.80 billion in 2013 as against N114.77 billion in comparable period of 2012.

Profit before tax jumped from N699.42 million to N3.08 billion while profit after tax leapt to N2.09 billion as against N487.22 million recorded in corresponding period of 2012. With these, earnings per share stood at N3.01 by September 2013 as against 70 kobo by September 2012.

There is a strong expectation that Conoil will consolidate its performance during the fourth quarter. According to the directors of the oil-marketing company, full year profit could rise to about N4 billion by the end of this year. On the basis of this management guidance, earnings per share could rise to N5.76 by the year ended December 31, 2013.

Nigeria’s largest conglomerate, UAC of Nigeria (UACN) Plc, had also witnessed considerable growths in turnover and profit in the third quarter after it consolidated earnings from two new acquisitions this year.

Nine-month earnings report of UACN Group for the period ended September 30, 2013 showed double-digit growths from the top-line to the bottom-line, raising expectations that the conglomerate may at least sustain its payout rate in spite of bonus shares of 20 per cent declared recently.